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Is Washington Mutual Going to be the Next Bank to Fail?

Written by:
Jagajeet Chiba
Published on:
Sep/14/2008
Washington Mutual

With news that Lehman Brothers is facing immanent bankruptcy and Merrill Lynch is likely to be taken over by Bank of America, many are wondering if troubled Washington Mutual could be the next bank to fail.

30 percent of those placing bets at financial prediction market, intrade.com believe that Washington Mutual will fail by year's end.

Washington Mutual's plans for another big write-down, along with its declaration that it has enough capital to survive, soothed some investors and analysts who feared the housing crisis might cripple the lender.

The largest U.S. savings and loan institution said late on Thursday it expected to set aside $4.5 billion for credit losses this quarter, down from the second quarter's $5.9 billion, and write off $2.7 billion for bad loans.

WaMu (WM.N: Quote, Profile, Research, Stock Buzz) made its unusual disclosure six weeks before it planned to report earnings to calm investor fears following a 34 percent in its shares in the four days since it named Alan Fishman as its new chief executive.

Fishman, incidentally, will be paid a salary and incentive package worth more than $20 million through 2009 for taking the helm of the troubled financial institution.

Washington Mutual - the sixth largest bank - has lost more than a third of its market value in the past week as investors fear it lacks liquidity and capital to survive the credit crisis.

The failure of a bank of WaMu's size would test the strength of the US deposit insurance system and its ability to maintain the confidence of the nation's savers, particularly if it is seen as part of a wave of bank failures.

As of June 30, 64 per cent of deposits in the US banking system were insured.

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Jagajeet Chiba, Gambling911.com

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